The Significance of Disclosure in a New Home Purchase By Dena Mentis
Special to iNest Finally, your search is at an end. You've compared, made notes, lost sleep, and finally made a decision about which newly built home you plan to purchase. Now a new set of tasks await you for which you may not be mentally (and emotionally) prepared. You are about to sign and initial literally dozens of pages of contractual builder documents, including some rather scary-looking documents with headings using the word "disclosure" in them. Although "seller disclosure" was a term loosely used before 1990 in both previously-owned homes and new home sales, it is now an important issue, forcibly brought to the forefront by the prospects of lemon laws and litigiously righteous consumers. It is important to consider the origins and reasons for seller disclosure laws so that you, as the homebuyer, do not blithely initial and sign this purchase agreement documentation without knowing the importance of your endorsements. Seller disclosure requires a home seller (builder or owner) to disclose any known material defect in the property about to be sold to you, the buyer, which could affect the current or future value of your property. In a re-sale purchase, defects may already exist in a home that has had several owners; issues like plumbing problems, cracked stucco, a 15-year roof in its 14th year, or bothersome soil erosion that has previous required remedy by a present or past owner of the home. But seller disclosure is not limited only to a used structure these days. Disclosures are meant to inform and give a "heads-up" regarding many different aspects of a home purchase. In the past, builder purchase agreements were simple three or four page legal instruments, which were augmented by addenda that altered the purchase price as upgrades were added. Other disclosures included those for neighborhood rules (C.C.& Rs), additional property taxes, and school bond fees, but not much surfaced that dealt with issues that may have surrounded the physical property. Needless to say, times have changed. Current new home contract packages are now tomes of legal disclosure. Today, builders must (and usually force themselves to) disclose everything that may or may even not be useful to know about their land, its development, the surrounding area, soils conditions, and even the future prospects for transportation, schools, and commercial areas and buildings nearby. But how, you may ask, could disclosure apply to a new home, built from the ground up, especially now, when the property is still dirt or in its initial framing stage? It can and does apply in many states. Builders will, for instance, disclose anything from the obvious to the potential, such as - the set of abandoned railroad tracks at the bottom of the hill may someday be used for light rail
- a three-story tall Home Depot may someday block the view from your family room (or that the proverbial legal door may be left ajar for something like this to become a reality).
- the uses the property experienced before it was subdivided for residential use (ever see the movie "Poltergeist?")
- the plan for existing trees, streams, and natural preserve land, and how homes will be placed around them
- plans for a neighborhood park and how that may affect surrounding homes and traffic
- rocky soil, should you decide to put a pool in your backyard
The list can go on and on. And you can imagine how incensed a homebuyer taking out a 30-year mortgage on a new home would be without knowing how some or all of these things may someday affect both their lives and their property values. Believe it or not, most builders tend to over-disclose. Why? Because instead of anticipating the wrath of just one homeowner in a given area, builders must anticipate the possibility of hundreds of disgruntled people going after them should something materially known to the builder somehow adversely affect future property values. The history of seller disclosure is not a long one, and you may begin to appreciate what changes it has caused in the industry to protect you as a consumer. Many assume that in most states, strict laws cover seller disclosure, but in most states it does not, at least not specifically. California is one of the leaders in disclosure laws, with a law passed there in 1987 that codified the questions the seller must answer. In addition, seller, buyer and any agent involved were now to initial a form that states that the subject property would have to be reasonably inspected with any defects properly disclosed. By 1992, only Maine and California had any type of formal regulations on the books requiring sellers to disclose hidden materials or latent defects in the property (for builders this would have been things like soils conditions and hazardous substances.) In that same year, national real estate giant Coldwell Banker announced a new policy that required all sellers listing property with their company to fill out and sign disclosure forms regardless of what the state required. Sellers were less than pleased at the prospect, but buyers were no doubt thrilled to be "in the know" when considering a purchase. By the mid-1990s all this began to change. Illinois sellers now fill out a 22-question seller disclosure form, with the NAR (National Association of Realtors) pushing for disclosure laws mandated by every state. With the majority of after-closing lawsuits brought about due to undisclosed conditions affecting value, it's clear to see what a Pandora's box this entire issue can create with Realtors, buyers and builders. To put their structural concerns at rest, some new homebuyers are now engaging the services of professional home inspectors during the process of construction so that they are reassured of the quality that is going into their new homes. These experts should be able to generate a satisfactory report on the home's framework, electrical, plumbing, and finish work. Should you decide to employ a home inspector, it may be wise to check with your homebuilder as to precisely what points in construction they will permit them enter the construction site. Of course, looking before your leap is the wisest course with any purchase, especially one as formidable as a new home. Fortunately, most homebuilders will insist that their buyers read any purchase agreement disclosures carefully before signing on the dotted line so that both buyer and seller can proceed with their eyes wide open. |
